US welfare system faces accounting overhaul
US welfare system faces accounting overhaul
By Krishna Guha in Washington
Copyright The Financial Times Limited 2006
Published: October 22 2006 22:17 | Last updated: October 22 2006 22:17
A radical new approach to government accounting that would require the US administration to account for the cost of future social security payments year by year as people build up entitlements will be proposed on Monday.
The proposal by the federal accounting standards advisory board (FASAB) – which would also require the government to account for benefits accrued under Medicare and other social insurance programmes in the same way – is unprecedented internationally. It would radically change the presentation of US government finances, in effect bringing forward the cost of rapidly increasing social security and Medicare obligations and greatly increasing the reported fiscal deficit.
George W. Bush’s administration is firmly opposed to the proposal, which officials believe wrongly implies that the government is contractually obliged to make future payments based on current benefit rules.
They fear this would make it more difficult to reform the big entitlement programmes and increase pressure on future governments to raise taxes to meet projected funding shortfalls.
The big increase in the reported fiscal deficit under the proposed rule could have an immediate political effect, making it more difficult to press for Bush tax cuts scheduled to expire in 2010 to be made permanent.
The result is a split in the FASAB board, with six independent members supporting the proposal and the three representing the Treasury, the White House office of management and budget, and the government accountability office opposing.
The FT has obtained a copy of the FASAB preliminary views paper which will be released on Monday. In it, the independent board majority argues that “for social insurance programmes an expense is incurred and a liability arises when participants substantially meet eligibility requirements during their working lives”.
By contrast, the government representatives argue that the liability arises only when the benefit amount is “due and payable” as under current accounting rules.
The majority independent directors want the government to start providing for the future cost of social security and other benefits when workers become fully insured after 10 years in covered employment.
They say the current arrangement is “flawed” because it “fails . . . to recognise the accruing cost of social insurance programmes in each reporting period”.
Adopting the proposed new rule would bring the government more into line with the private sector, an approach that has considerable support within a section of the Republican party and may in this instance be of interest to Democrats too.
However, it would break with international public accounting practice, which essentially treats social insurance offered by sovereign governments as a political commitment to pay future benefits rather than a financial liability.
The Organisation for Economic Co-operation and Development has written to the FASAB saying it is “very concerned” about the proposed rule change.
The letter, signed by Barry Anderson, head of the OECD’s budgeting and public expenditures division, says that “classifying these transactions the same as private sector liabilities is wrong” and could confuse the public.
The proposal will now be put to public consultation, with hearings scheduled for March. If the board votes to adopt it, the administration could still veto the proposal, but this would be unprecedented.
“We have never been prevented from adopting an accounting standard,” a person familiar with the process said.
By Krishna Guha in Washington
Copyright The Financial Times Limited 2006
Published: October 22 2006 22:17 | Last updated: October 22 2006 22:17
A radical new approach to government accounting that would require the US administration to account for the cost of future social security payments year by year as people build up entitlements will be proposed on Monday.
The proposal by the federal accounting standards advisory board (FASAB) – which would also require the government to account for benefits accrued under Medicare and other social insurance programmes in the same way – is unprecedented internationally. It would radically change the presentation of US government finances, in effect bringing forward the cost of rapidly increasing social security and Medicare obligations and greatly increasing the reported fiscal deficit.
George W. Bush’s administration is firmly opposed to the proposal, which officials believe wrongly implies that the government is contractually obliged to make future payments based on current benefit rules.
They fear this would make it more difficult to reform the big entitlement programmes and increase pressure on future governments to raise taxes to meet projected funding shortfalls.
The big increase in the reported fiscal deficit under the proposed rule could have an immediate political effect, making it more difficult to press for Bush tax cuts scheduled to expire in 2010 to be made permanent.
The result is a split in the FASAB board, with six independent members supporting the proposal and the three representing the Treasury, the White House office of management and budget, and the government accountability office opposing.
The FT has obtained a copy of the FASAB preliminary views paper which will be released on Monday. In it, the independent board majority argues that “for social insurance programmes an expense is incurred and a liability arises when participants substantially meet eligibility requirements during their working lives”.
By contrast, the government representatives argue that the liability arises only when the benefit amount is “due and payable” as under current accounting rules.
The majority independent directors want the government to start providing for the future cost of social security and other benefits when workers become fully insured after 10 years in covered employment.
They say the current arrangement is “flawed” because it “fails . . . to recognise the accruing cost of social insurance programmes in each reporting period”.
Adopting the proposed new rule would bring the government more into line with the private sector, an approach that has considerable support within a section of the Republican party and may in this instance be of interest to Democrats too.
However, it would break with international public accounting practice, which essentially treats social insurance offered by sovereign governments as a political commitment to pay future benefits rather than a financial liability.
The Organisation for Economic Co-operation and Development has written to the FASAB saying it is “very concerned” about the proposed rule change.
The letter, signed by Barry Anderson, head of the OECD’s budgeting and public expenditures division, says that “classifying these transactions the same as private sector liabilities is wrong” and could confuse the public.
The proposal will now be put to public consultation, with hearings scheduled for March. If the board votes to adopt it, the administration could still veto the proposal, but this would be unprecedented.
“We have never been prevented from adopting an accounting standard,” a person familiar with the process said.
posted by Carlos T Mock @ 7:51 AM
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